In Depth

Financial institutions sending letters and emails alerting customers of possible unauthorized access to their bank accounts
or credit cards are more common that anyone would like. Soon, however, such notices may come from hospitals and medical insurance
companies.

The change is being ushered in by the new Health Insurance Portability and Accountability Act of 1996 rule announced in January
by the U.S. Department of Health and Human Services. At 563 pages, the regulation is being touted as finalizing a number of
provisions in the Health Information Technology for Economic and Clinical Health Act and strengthening the privacy and security
protections for health information provided under HIPAA.

Eckhardt

When the omnibus rule was unveiled, Kathleen Sebelius, HHS secretary, pointed to the growing use of electronic medical records
as part of the cause for the new rule.

“Much has changed in health care since HIPAA was enacted over 15 years ago,” Sebelius stated in a press release.
“The new rule will help protect patient privacy and safeguard patients’ health information in an ever expanding
digital age.”

Attorneys agreed with the government’s assessment that these are “sweeping changes.”

“It’s a significant piece of regulation enforcing a patient’s privacy rights,” said Chad Eckhardt,
an associate in Frost Brown Todd LLC’s Cincinnati office. “It’s going to take a while for covered entities
to get their arms around.”

The final omnibus rule addresses four regulatory areas. It provides the final modifications to the HIPAA privacy, security
and enforcement rules; sets the final rule adopting the increased civil money penalty structure; issues the final standard
on breach notification for unsecured protected health information; and modifies the HIPAA privacy rule that prevents most
health plans from using or disclosing genetic information for underwriting purposes.

Most of the regulations have been public for some time and the language of the final rule was expected. Although few surprises
were contained in the document, Eckhardt said, the change to the breach notification provision has turned many heads.

Ziel

Namely, the standard of “significant harm” has been dropped which could lead to more people getting letters from
their doctors and insurance companies that their medical records may have been compromised.

Breach notification

The push toward electronic medical records was accelerated by the Patient Protection and Affordable Care Act. Early projections
that billions of dollars would be saved by moving to electronic records have been dampened, but computerized health information
still has advantages. Some can alert physicians to tests a patient needs, reduce mistakes in prescriptions, and aid in research.

“Privacy is a big issue because if health records are more accessible to doctors, they’re also more accessible
to everybody else,” said David Orentlicher, professor at the Indiana University Robert H. McKinney School of Law.

Medical records contain a great deal of information from details of a patient’s health to financial account numbers
and Social Security numbers.

With an apparent eye on the increased potential health information being lost or stolen, the HHS revised the Breach Notification
Rule first published in the 2009 HITECH Act.

Under the initial provision, patients did not have to be notified of any breach if the covered entity, such as health care
provider or health insurance company, determined the information improperly accessed did not pose a “significant risk
of harm” to those patients.

The covered entities were required to perform a risk assessment to examine elements such as who accessed the information
and what type of information was disclosed. Then, if that analysis indicated the breach did not put the patient’s financial
or personal wellbeing at risk, no notification had to be sent.

Advocates supporting the significant harm standard pointed to the increased costs and burden that covered entities and their
business associates would have to bear if the threshold for notification was lowered. In addition, alerting consumers when
there was no risk of damage could cause unnecessary anxiety and, eventually, apathy.

However, opponents countered the significant harm provision set the standard too high.

In the final rule just released, the HHS removed the harm standard and modified the risk assessment. Now, the focus has shifted
from assessing the risk to the individual to proving that the improper disclosure did not compromise the protected health
information. The HHS is also providing more objective guidelines for doing the risk assessment to determine if a notification
is necessary.

Penalties

Accordingly, costs for covered entities and business associates will likely rise because they will have to pay for not only
the alert but also repairing the breach and offering any mitigating services like credit monitoring.

Also, since enforcement happens after the breach has occurred, the notification could become even more costly.

The financial penalties were unveiled in the HITECH Act. Fines for improper releases of protected health information have
long been a part of HIPAA, but the new reparations are substantially higher.

Prior to HITECH, the fine could not be more than $100 per violation and the total penalty could not exceed $25,000 a year.
Attorneys said the dollar amounts were so low that hardly anyone paid them much attention.

Zoccola

They are paying attention now. The civil money penalty provision divides the violations into four tiers, ranging from “Did
Not Know” to “Willful Neglect – Not Corrected.” The fines for each violation go from a low $100 to
a high $50,000, and the total penalty could reach $1.5 million per violation of HIPAA rules within a calendar year.

“I think that’s probably what it takes to get people’s attention sometimes, or so the government thinks,”
said Susan Ziel, partner at Krieg Devault LLP’s Minneapolis office.

Moreover, the new rule expands the liability. Now, not only are covered entities liable to HIPAA violations but so are their
business associates, which includes anyone who has access to medical records like lawyers, transcribers and accountants.

Enforcement activity has been increasing.

In September, the Massachusetts Eye and Ear Infirmary and Massachusetts Eye and Ear Associates Inc., reached a settlement
agreement with the HHS to pay $1.5 million for potential HIPAA violations. The settlement came after the infirmary filed a
breach notification, reporting the theft of an unencrypted personal laptop containing the electronic protected health information
of patients and research subjects.

Getting started

The final omnibus rule was published Jan. 25 and goes into effect March 26. Compliance must be met by Sept. 23.

Many health care providers and insurance companies have not updated their HIPAA policies since the act took effect in 2003.
Christine Zoccola, partner at Bose McKinney & Evans LLP in Indianapolis, noted attorneys will be working not only to educate
their clients on the final rule but also to revise procedures, forms and contracts to meet the new provisions.

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